##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2010
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 001-34211
 
 GRAND CANYON EDUCATION, INC.
 (Exact name of registrant as specified in its charter)
 
 DELAWARE
    
    20-3356009(State or other jurisdiction of 
Incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 3300 W. Camelback Road
Phoenix, Arizona 85017  (Address, including zip code, of principal executive offices)
 (602) 639-7500
(Registrants telephone number, including area code)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 Yes
o No
þ




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##### 



GRAND CANYON EDUCATION, INC.
FORM 10-Q
INDEX
 PagePART I  FINANCIAL INFORMATIONItem 1 Financial Statements
    
    
    3Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    21Item 4 Controls and Procedures
    
    
    22PART II  OTHER INFORMATIONItem 1 Legal Proceedings
    
    
    22Item 1A Risk Factors
    
    
    23Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 3 Defaults Upon Senior Securities
    
    
    26Item 4 Reserved
    
    
    26Item 5 Other Information
    
    
    26Item 6 Exhibits
    
    
    27SIGNATURES
    
    
    28Exhibit 10.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 GRAND CANYON EDUCATION, INC.
Income Statements

(Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(In thousands, except per share amounts)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Net revenue
    
    $
    97,522
    
    
    $
    62,905
    
    
    $
    186,848
    
    
    $
    118,364Costs and expenses:Instructional costs and services
    
    
    36,169
    
    
    
    20,411
    
    
    
    67,981
    
    
    
    38,379Selling and promotional, including $2,628 and $1,875
for the three months ended June 30, 2010 and 2009,
respectively, and $4,975 and $3,391 for the six
months ended June 30, 2010 and 2009, respectively,
to related parties
    
    
    28,976
    
    
    
    20,726
    
    
    
    55,852
    
    
    
    40,301General and administrative
    
    
    11,675
    
    
    
    8,688
    
    
    
    22,553
    
    
    
    17,521Exit costs
    
    
    116
    
    
    
    
    
    
    
    205
    
    
    
    Royalty to former owner
    
    
    74
    
    
    
    74
    
    
    
    148
    
    
    
    148Total costs and expenses
    
    
    77,010
    
    
    
    49,899
    
    
    
    146,739
    
    
    
    96,349Operating income
    
    
    20,512
    
    
    
    13,006
    
    
    
    40,109
    
    
    
    22,015Interest expense
    
    
    (162
    )
    
    
    (420
    )
    
    
    (506
    )
    
    
    (1,087
    )Interest income
    
    
    37
    
    
    
    120
    
    
    
    98
    
    
    
    229Income before income taxes
    
    
    20,387
    
    
    
    12,706
    
    
    
    39,701
    
    
    
    21,157Income tax expense
    
    
    7,991
    
    
    
    5,063
    
    
    
    15,825
    
    
    
    8,439Net income
    
    $
    12,396
    
    
    $
    7,643
    
    
    $
    23,876
    
    
    $
    12,718Net income per common share:Basic
    
    $
    0.27
    
    
    $
    0.17
    
    
    $
    0.52
    
    
    $
    0.28Diluted
    
    $
    0.27
    
    
    $
    0.17
    
    
    $
    0.51
    
    
    $
    0.28Shares used in computing net income per common share:Basic
    
    
    45,724
    
    
    
    44,846
    
    
    
    45,699
    
    
    
    45,159Diluted
    
    
    46,557
    
    
    
    45,051
    
    
    
    46,441
    
    
    
    45,437
 The accompanying notes are an integral part of these financial statements.
  3




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GRAND CANYON EDUCATION, INC.
Balance Sheets
 June 30,
    
    
    December 31,(In thousands, except par value)
    
    2010
    
    
    2009(Unaudited)ASSETS:Current assetsCash and cash equivalents
    
    $
    43,420
    
    
    $
    62,571Restricted cash, cash equivalents and
investments (of which $170 is unrestricted
at December 31, 2009)
    
    
    30,658
    
    
    
    3,403Accounts receivable, net of allowance for
doubtful accounts of $11,182 and $7,553 at
June 30, 2010 and December 31, 2009,
respectively
    
    
    42,636
    
    
    
    13,802Deferred income taxes
    
    
    11,355
    
    
    
    6,685Other current assets
    
    
    4,864
    
    
    
    3,785Total current assets
    
    
    132,933
    
    
    
    90,246Property and equipment, net
    
    
    85,012
    
    
    
    67,370Investments
    
    
    
    
    
    
    360Prepaid royalties
    
    
    6,945
    
    
    
    7,311Goodwill
    
    
    2,941
    
    
    
    2,941Deferred income taxes
    
    
    7,509
    
    
    
    5,956Other assets
    
    
    2,473
    
    
    
    554Total assets
    
    $
    237,813
    
    
    $
    174,738LIABILITIES AND STOCKHOLDERS EQUITY:Current liabilitiesAccounts payable
    
    $
    12,053
    
    
    $
    8,762Accrued liabilities
    
    
    26,585
    
    
    
    18,103Accrued estimated litigation loss
    
    
    5,200
    
    
    
    5,200Accrued exit costs
    
    
    351
    
    
    
    832Income taxes payable
    
    
    4,815
    
    
    
    2,261Deferred revenue and student deposits
    
    
    45,083
    
    
    
    23,204Due to related parties
    
    
    2,076
    
    
    
    1,174Current portion of capital lease obligations
    
    
    710
    
    
    
    751Current portion of notes payable
    
    
    2,100
    
    
    
    2,105Total current liabilities
    
    
    98,973
    
    
    
    62,392Capital lease obligations, less current portion
    
    
    502
    
    
    
    868Notes payable, less current portion and other
    
    
    25,031
    
    
    
    25,450Total liabilities
    
    
    124,506
    
    
    
    88,710Commitments and contingenciesStockholders equityPreferred stock, $0.01 par value, 10,000
shares authorized; 0 shares issued and
outstanding at June 30, 2010 and December 31,
2009
    
    
    
    
    
    
    Common stock, $0.01 par value, 100,000 shares
authorized; 45,745 and 45,658 shares issued
and outstanding at June 30, 2010 and December
31, 2009, respectively
    
    
    457
    
    
    
    457Additional paid-in capital
    
    
    73,880
    
    
    
    70,100Accumulated other comprehensive loss
    
    
    (521
    )
    
    
    (144
    )Accumulated earnings
    
    
    39,491
    
    
    
    15,615Total stockholders equity
    
    
    113,307
    
    
    
    86,028Total liabilities and stockholders equity
    
    $
    237,813
    
    
    $
    174,738
 The accompanying notes are an integral part of these financial statements.
  4




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GRAND CANYON EDUCATION, INC.
Statement of Stockholders Equity
(In thousands)
(Unaudited)
 AccumulatedAdditional
    
    
    OtherCommon Stock
    
    
    Paid-in
    
    
    Comprehensive
    
    
    AccumulatedShares
    
    
    Par Value
    
    
    Capital
    
    
    Loss
    
    
    Earnings
    
    
    TotalBalance at December 31,
2009
    
    
    45,658
    
    
    $
    457
    
    
    $
    70,100
    
    
    $
    (144
    )
    
    $
    15,615
    
    
    $
    86,028Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,876
    
    
    
    23,876Unrealized loss on
hedging derivatives, net
of taxes of $237
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (354
    )
    
    
    
    
    
    
    (354
    )Unrealized losses on
available for-sale
securities, net of taxes
of $3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )Reclassification of
realized gains on
available for-sale
securities, net of taxes
of $12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19
    )
    
    
    
    
    
    
    (19
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,499Exercise of stock options
    
    
    80
    
    
    
    
    
    
    
    955
    
    
    
    
    
    
    
    
    
    
    
    955Excess tax benefits from
share-based compensation
    
    
    
    
    
    
    
    
    
    
    487
    
    
    
    
    
    
    
    
    
    
    
    487Share-based compensation
    
    
    7
    
    
    
    
    
    
    
    2,338
    
    
    
    
    
    
    
    
    
    
    
    2,338Balance at June 30, 2010
    
    
    45,745
    
    
    $
    457
    
    
    $
    73,880
    
    
    $
    (521
    )
    
    $
    39,491
    
    
    $
    113,307
 The accompanying notes are an integral part of these financial statements.
  5




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GRAND CANYON EDUCATION, INC.
Statements of Cash Flows
(Unaudited)
 Six Months Ended June 30,(In thousands)
    
    2010
    
    
    2009Cash flows provided by operating activities:Net income
    
    $
    23,876
    
    
    $
    12,718Adjustments to reconcile net income to net cash provided by operating activities:Share-based compensation
    
    
    2,338
    
    
    
    1,577Excess tax benefits from share-based compensation
    
    
    (536
    )
    
    
    (9
    )Amortization of debt issuance costs
    
    
    32
    
    
    
    Provision for bad debts
    
    
    10,273
    
    
    
    6,587Depreciation and amortization
    
    
    5,309
    
    
    
    3,386Non-capitalizable system conversion costs
    
    
    4,013
    
    
    
    Exit costs
    
    
    (481
    )
    
    
    Deferred income taxes
    
    
    (5,974
    )
    
    
    (1,296
    )Other
    
    
    (59
    )
    
    
    (14
    )Changes in assets and liabilities:Accounts receivable
    
    
    (43,120
    )
    
    
    (7,757
    )Prepaid expenses and other
    
    
    (2,910
    )
    
    
    333Due to/from related parties
    
    
    902
    
    
    
    469Accounts payable
    
    
    3,062
    
    
    
    2,942Accrued liabilities
    
    
    8,482
    
    
    
    1,729Income taxes payable
    
    
    3,041
    
    
    
    396Deferred revenue and student deposits
    
    
    21,879
    
    
    
    5,921Net cash provided by operating activities
    
    
    30,127
    
    
    
    26,982Cash flows used in investing activities:Capital expenditures
    
    
    (22,355
    )
    
    
    (11,111
    )Purchase of campus land and buildings
    
    
    
    
    
    
    (35,505
    )Change in restricted cash and cash equivalents
    
    
    (27,386
    )
    
    
    (1,108
    )Proceeds from sale or maturity of investments
    
    
    487
    
    
    
    Net cash used in investing activities
    
    
    (49,254
    )
    
    
    (47,724
    )Cash
flows (used in) provided by financing activities:Principal payments on notes payable and capital lease obligations
    
    
    (1,515
    )
    
    
    (976
    )Proceeds from debt
    
    
    
    
    
    
    25,547Repurchase of common shares
    
    
    
    
    
    
    (14,495
    )Excess tax benefits from share-based compensation
    
    
    536
    
    
    
    9Net proceeds from exercise of stock options
    
    
    955
    
    
    
    247Net cash (used in) provided by financing activities
    
    
    (24
    )
    
    
    10,332Net decrease in cash and cash equivalents
    
    
    (19,151
    )
    
    
    (10,410
    )Cash and cash equivalents, beginning of period
    
    
    62,571
    
    
    
    35,152Cash and cash equivalents, end of period
    
    $
    43,420
    
    
    $
    24,742Supplemental disclosure of cash flow informationCash paid for interest
    
    $
    409
    
    
    $
    1,276Cash paid for income taxes
    
    $
    19,061
    
    
    $
    9,402Supplemental disclosure of non-cash investing and financing activitiesPurchase of equipment through capital lease obligations
    
    $
    
    
    
    $
    2,116Purchases of property and equipment included in accounts payable
    
    $
    229
    
    
    $
    1,041Settlement of capital lease obligation
    
    $
    
    
    
    $
    30,020Tax benefit of Spirit warrant intangible
    
    $
    259
    
    
    $
    314
 The accompanying notes are an integral part of these financial statements.
  6




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GRAND CANYON EDUCATION, INC.
Notes to Financial Statements
(In thousands, except share and per share data)
(Unaudited)
 1. Nature of Business
  2. Summary of Significant Accounting Policies
 Unaudited Interim Financial Information
  Instructional Costs and Services
  Selling
and Promotional
  General
and Administrative
  Derivatives and Hedging
       Fair Value of Financial Instruments
   7




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GRAND CANYON EDUCATION, INC.
Notes to Financial Statements
(In thousands, except share and per share data)
(Unaudited)
 Exit Costs
   Accrued Exit Costs
    
    
    
    
    
    
    
    
    
    
    Accrued Exitat
    
    
    
    
    
    
    
    
    
    
    Costs atDecember 31, 2009
    
    
    Exit Costs
    
    
    Payments to Date
    
    
    June 30, 2010Severance payments
    
    $
    503
    
    
    $
    
    
    
    $
    (503
    )
    
    $
    Future lease payments, net of estimated sublease rentals
    
    
    288
    
    
    
    109
    
    
    
    (128
    )
    
    
    269Leasehold improvements and other
    
    
    41
    
    
    
    96
    
    
    
    (55
    )
    
    
    82Total
    
    $
    832
    
    
    $
    205
    
    
    $
    (686
    )
    
    $
    351
 Comprehensive Income
  Use of Estimates
  Segment Information
  Reclassifications
  Recent Accounting Pronouncements
     8




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GRAND CANYON EDUCATION, INC.
Notes to Financial Statements
(In thousands, except share and per share data)
(Unaudited)
 3. Spirit Transaction and Loan Agreement
   4. Net Income Per Common Share
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Denominator:Basic common shares outstanding
    
    
    45,723,634
    
    
    
    44,846,224
    
    
    
    45,698,913
    
    
    
    45,158,536Effect of dilutive stock options and restricted stock
    
    
    833,788
    
    
    
    204,395
    
    
    
    742,322
    
    
    
    278,388Diluted common shares outstanding
    
    
    46,557,422
    
    
    
    45,050,619
    
    
    
    46,441,235
    
    
    
    45,436,924
 5. Valuation and Qualifying Accounts
 Balance at
    
    
    
    
    
    
    
    
    
    
    Balance atBeginning of
    
    
    Charged to
    
    
    
    
    
    
    End ofPeriod
    
    
    Expense
    
    
    Deductions(1)
    
    
    PeriodAllowance for doubtful accounts receivable:Six months ended June 30, 2010
    
    $
    7,553
    
    
    
    10,273
    
    
    
    (6,644
    )
    
    $
    11,182Six months ended June 30, 2009
    
    $
    6,356
    
    
    
    6,587
    
    
    
    (5,833
    )
    
    $
    7,110
 (1)
    
    Deductions represent accounts written off, net of recoveries. 6. Property and Equipment
  As of June 30,
    
    
    As of December 31,2010
    
    
    2009Land
    
    $
    8,282
    
    
    $
    7,230Land improvements
    
    
    1,597
    
    
    
    1,597Buildings
    
    
    25,176
    
    
    
    25,176Equipment under capital leases
    
    
    3,545
    
    
    
    3,545Leasehold improvements
    
    
    7,288
    
    
    
    3,692Computer equipment
    
    
    30,134
    
    
    
    22,327Furniture, fixtures and equipment
    
    
    9,025
    
    
    
    7,750Other
    
    
    2,763
    
    
    
    1,431Construction in progress
    
    
    15,384
    
    
    
    7,712103,194
    
    
    
    80,460Less accumulated depreciation and amortization
    
    
    (18,182
    )
    
    
    (13,090
    )Property and equipment, net
    
    $
    85,012
    
    
    $
    67,370
  9




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GRAND CANYON EDUCATION, INC.
Notes to Financial Statements
(In thousands, except share and per share data)
(Unaudited)
 7. Accrued Liabilities
  June 30,
    
    
    December 31,2010
    
    
    2009Accrued compensation and benefits
    
    $
    17,298
    
    
    $
    11,898Accrued interest
    
    
    90
    
    
    
    94Deferred rent
    
    
    238
    
    
    
    244Tax reserves, non-income tax related
    
    
    709
    
    
    
    229Tax reserves, income tax related
    
    
    267
    
    
    
    568Other accrued expenses
    
    
    7,983
    
    
    
    5,070$
    26,585
    
    
    $
    18,103
 8. Commitments and Contingencies
 Leases
  2010
    
    $
    1,9662011
    
    
    4,0692012
    
    
    3,6232013
    
    
    3,6812014
    
    
    3,309Thereafter
    
    
    12,538Total minimum payments
    
    $
    29,186
  Legal Matters
   qui tam qui tam qui tam
  10




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GRAND CANYON EDUCATION, INC.
Notes to Financial Statements
(In thousands, except share and per share data)
(Unaudited)
 qui tam qui tam
 qui tam qui tam
 qui tam
  Tax Reserves, Non-Income Tax Related
  9. Income Taxes
  10. Share-Based Compensation
   11




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GRAND CANYON EDUCATION, INC.
Notes to Financial Statements
(In thousands, except share and per share data)
(Unaudited)
  Summary of Stock Options OutstandingWeighted
    
    
    WeightedAverage
    
    
    AverageExercise
    
    
    Remaining
    
    
    AggregateTotal
    
    
    Price per
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Share
    
    
    Term (Years)
    
    
    Value ($)(1)Outstanding as of December 31, 2009
    
    
    3,349,996
    
    
    
    12.30Granted
    
    
    883,800
    
    
    
    21.25Exercised
    
    
    (79,602
    )
    
    
    12.00Forfeited, canceled or expired
    
    
    (64,130
    )
    
    
    16.60Outstanding as of June 30, 2010
    
    
    4,090,064
    
    
    $
    14.18
    
    
    
    8.69
    
    
    $
    37,833Exercisable as of June 30, 2010
    
    
    1,031,854
    
    
    $
    12.07
    
    
    
    8.40
    
    
    $
    11,722Available for issuance as of June 30, 2010
    
    
    2,037,778
 (1)
    
    Aggregate intrinsic value represents the value of our closing stock
price on June 30, 2010 ($23.43) in excess of the exercise price
multiplied by the number of options outstanding or exercisable. Share-based Compensation Expense
  2010
    
    
    2009Instructional costs and services
    
    $
    918
    
    
    $
    173Selling and promotional
    
    
    100
    
    
    
    78General and administrative
    
    
    1,320
    
    
    
    1,326Share-based compensation expense included in operating expenses
    
    
    2,338
    
    
    
    1,577Tax effect of share-based compensation
    
    
    (935
    )
    
    
    (631
    )Share-based compensation expense, net of tax
    
    $
    1,403
    
    
    $
    946
 Restricted Stock Grants
  11. Regulatory
     12




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GRAND CANYON EDUCATION, INC.
Notes to Financial Statements
(In thousands, except share and per share data)
(Unaudited)
  qui tam qui tam
    13




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion of our historical results of operations and our liquidity and capital
resources should be read in conjunction with the financial statements and related notes that appear
elsewhere in this report.
 Forward-Looking Statements
 Managements Discussion and Analysis of
Financial Condition and Results of Operations
  
    
    our failure to comply with the extensive regulatory framework applicable to our
industry, including Title IV of the Higher Education Act and the regulations thereunder,
state laws and regulatory requirements, and accrediting commission requirements;
    
    the results of the ongoing investigation by the Department of Educations Office of
Inspector General and the pending qui tamaction regarding the manner in which we have
compensated our enrollment personnel, and possible remedial actions or other liability
resulting therefrom;
    
    the results of the ongoing program review being conducted by the Department of
Education of our compliance with Title IV program requirements, and possible fines or
other administrative sanctions resulting therefrom;
    
    the ability of our students to obtain federal Title IV funds, state financial aid,
and private financing;
    
    we experience damage to our reputation or other adverse effects as a result of
negative publicity in the media, in industry or in connection with governmental reports
or investigations or otherwise, affecting us or other companies in the for-profit
postsecondary education sector;
    
    risks associated with changes in applicable federal and state laws and regulations
and accrediting commission standards;
    
    we experience a change of control under applicable regulatory or accrediting
standards, including as a result of actions or events not within our control, and we are
unable to obtain appropriate approvals for such an event in a timely manner, or at all;
    
    our ability to hire and train new, and develop and train existing, enrollment
counselors;
    
    the pace of growth of our enrollment;
    
    our ability to convert prospective students to enrolled students and to retain
active students;
    
    our success in updating and expanding the content of existing programs and
developing new programs in a cost-effective manner or on a timely basis;
    
    industry competition, including competition for qualified executives and other
personnel;
    
    risks associated with the competitive environment for marketing our programs;
    
    failure on our part to keep up with advances in technology that could enhance the
online experience for our students;
    
    the extent to which obligations under our loan agreement, including the need to
comply with restrictive and financial convenants and to pay principal and interest
payments, limits our ability to conduct our operations or seek new business
opportunities;
    
    our ability to manage future growth effectively;
    
    general adverse economic conditions or other developments that affect job prospects
in our core disciplines; and
    
    other factors discussed under the headings Risk Factors and Managements
Discussion and Analysis of Financial Condition and Results of Operations.
   14




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Overview
     June 30,2010(1)
    
    
    2009# of Students
    
    
    % of Total
    
    
    # of Students
    
    
    % of TotalGraduate degrees(2)
    
    
    15,916
    
    
    
    43.8
    %
    
    
    13,841
    
    
    
    50.1
    %Undergraduate degree
    
    
    20,385
    
    
    
    56.2
    %
    
    
    13,781
    
    
    
    49.9
    %Total
    
    
    36,301
    
    
    
    100.0
    %
    
    
    27,622
    
    
    
    100.0
    %
 June 30,2010(1)
    
    
    2009# of Students
    
    
    % of Total
    
    
    # of Students
    
    
    % of TotalOnline(3)
    
    
    35,145
    
    
    
    96.8
    %
    
    
    26,234
    
    
    
    95.0
    %Ground(4)
    
    
    1,156
    
    
    
    3.2
    %
    
    
    1,388
    
    
    
    5.0
    %Total
    
    
    36,301
    
    
    
    100.0
    %
    
    
    27,622
    
    
    
    100.0
    %
 (1)
    
    Enrollment at June 30, 2010 represents individual students who attended a course during the last two months of
the calendar quarter. Prior to our transition to BBAY, enrollment had been defined as individual students that
attended a course in a term that was in session as of the end of the quarter.(2)
    
    Includes 870 and 228 students pursuing doctoral degrees at June 30, 2010 and 2009, respectively.(3)
    
    As of June 30, 2010 and 2009, 44.1% and 50.8%, respectively, of our Online students are pursuing graduate degrees.(4)
    
    Includes both our traditional on-campus ground students, as well as our professional studies students. Critical Accounting Policies and Use of Estimates
  Key Trends, Developments and
Challenges The following
circumstances and trends present opportunities, challenges and risks. Evolving Postsecondary Education
Market The U.S. is in the
midst of an economic downturn that has caused an increased number of
individuals to consider advancing their education. Additionally, we believe the
number of non-traditional students who work, are raising a family, or are doing
both while trying to earn a college degree continue to grow. Given these
trends, we believe that many individuals will be attracted to our high quality
academic programs at affordable tuition rates. Regulation and Oversight
  Pending Rulemaking by the Department of Education
   15




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##### Table of Contents




    
    Modification of the standards relating to the payment of incentive
compensation to employees involved in student recruitment and enrollment; and
 
    
    Adoption of a definition of gainful employment for purposes of the
requirement for Title IV student financial aid that a program of study prepare
students for gainful employment in a recognized occupation.
   Department of Education Program Review
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Congressional Hearings
    17




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##### Table of Contents



Results of Operations
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Operating expensesInstructional cost and services
    
    
    37.1
    
    
    
    32.4
    
    
    
    36.4
    
    
    
    32.4Selling and promotional
    
    
    29.7
    
    
    
    32.9
    
    
    
    29.9
    
    
    
    34.0General and administrative
    
    
    12.0
    
    
    
    13.8
    
    
    
    12.1
    
    
    
    14.8Exit costs
    
    
    0.1
    
    
    
    0.0
    
    
    
    0.1
    
    
    
    0.0Royalty to former owner
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1Total operating expenses
    
    
    79.0
    
    
    
    79.3
    
    
    
    78.5
    
    
    
    81.4Operating income
    
    
    21.0
    
    
    
    20.7
    
    
    
    21.5
    
    
    
    18.6Interest expense
    
    
    (0.2
    )
    
    
    (0.7
    )
    
    
    (0.3
    )
    
    
    (0.9
    )Interest income
    
    
    0.0
    
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.2Income before income taxes
    
    
    20.9
    
    
    
    20.2
    
    
    
    21.2
    
    
    
    17.9Income tax expense
    
    
    8.2
    
    
    
    8.0
    
    
    
    8.5
    
    
    
    7.1Net income
    
    
    12.7
    
    
    
    12.2
    
    
    
    12.8
    
    
    
    10.7
 Three Months Ended June 30, 2010 Compared to Three Months Ended June 30, 2009
 Net revenue
 Instructional cost and services expenses
 Selling and promotional expenses
 General and administrative expenses
 Interest expense
  18




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##### Table of Contents



Income
tax expense
 Net
income
 Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009
 Net revenue
 Instructional cost and services expenses
 Selling and promotional expenses
 General and administrative expenses
 Interest expense
 Income tax expense (benefit)
 Net
income
 Seasonality
   19




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Liquidity and Capital Resources
 Liquidity
    Cash Flows
 Operating Activities
 Investing Activities
 Financing Activities
 Contractual Obligations
  Payments Due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 Year
    
    
    2-3 Years
    
    
    4-5 Years
    
    
    5 YearsLong term notes payable
    
    $
    25.0
    
    
    $
    1.0
    
    
    $
    3.8
    
    
    $
    19.8
    
    
    $
    0.4Capital lease obligations
    
    
    1.2
    
    
    
    0.3
    
    
    
    0.9
    
    
    
    0.0
    
    
    
    0.0Purchase obligations(1)
    
    
    53.5
    
    
    
    29.7
    
    
    
    23.4
    
    
    
    0.4
    
    
    
    0.0Operating lease obligations
    
    
    29.2
    
    
    
    2.0
    
    
    
    7.7
    
    
    
    7.0
    
    
    
    12.5Total contractual obligations
    
    $
    108.9
    
    
    $
    33.0
    
    
    $
    35.8
    
    
    $
    27.2
    
    
    $
    12.9
 (1)
    
    The purchase obligation amounts include expected spending by period
under contracts that were in effect at June 30, 2010. Less than one
year represents expected expenditures from July 1, 2010 through
December 31, 2010. Off-Balance Sheet Arrangements
  Non-GAAP Discussion
     20




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
    
    cash expenditures for capital expenditures or contractual commitments;
 
    
    changes in, or cash requirements for, our working capital requirements;
 
    
    interest expense, or the cash requirements necessary to service interest or
principal payments on our indebtedness;
 
    
    the cost or cash required to replace assets that are being depreciated or
amortized; and
 
    
    the impact on our reported results of earnings or charges resulting from the items
for which we make adjustments to our EBITDA, as described above and set forth in the
table below.
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(Unaudited, in
thousands)Net income
    
    $
    12,396
    
    
    $
    7,643
    
    
    $
    23,876
    
    
    $
    12,718Plus: interest expense net of interest income
    
    
    125
    
    
    
    300
    
    
    
    408
    
    
    
    858Plus: income tax expense
    
    
    7,991
    
    
    
    5,063
    
    
    
    15,825
    
    
    
    8,439Plus: depreciation and amortization
    
    
    2,574
    
    
    
    1,680
    
    
    
    5,161
    
    
    
    3,238EBITDA
    
    
    23,086
    
    
    
    14,686
    
    
    
    45,270
    
    
    
    25,253Plus: royalty to former owner (a)
    
    
    74
    
    
    
    74
    
    
    
    148
    
    
    
    148Plus: exit costs (b)
    
    
    116
    
    
    
    
    
    
    
    205
    
    
    
    Plus: share-based compensation (c )
    
    
    1,301
    
    
    
    813
    
    
    
    2,338
    
    
    
    1,577Adjusted EBITDA
    
    $
    24,577
    
    
    $
    15,573
    
    
    $
    47,961
    
    
    $
    26,978
 (a)
    
    Reflects the amortization of prepaid royalties recorded in conjunction with a settlement with the former owner.(b)
    
    Represents exit costs as a result of the closure of the student services facility in Utah during the fourth
quarter of 2009. This amount represents increased costs related to an adjustment in the estimated sublease
rentals associated with the leased space.(c)
    
    Reflects share-based compensation expense relating to stock and option grants made to employees and directors. 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Impact of inflation.
 Market risk
  Interest rate risk
  21




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Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting.
  
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
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##### Table of Contents



qui tam
  
 Item 1A. Risk Factors
  A qui tam lawsuit has been filed against us alleging, among other things, that we have improperly
compensated certain of our enrollment counselors, and we may incur liability, be subject to
sanctions, or experience damage to our reputation as a result of this lawsuit.
 qui tam qui tam qui tam qui tam
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##### Table of Contents



The Department of Education is conducting a program review of Grand Canyon University, which may
result in the repayment of a substantial amount of Title IV funds and may lead to fines, penalties,
or other sanctions, and damage to our reputation in the industry.
  qui tam qui tam
   Pending rulemaking by the U.S. Department of Education could result in regulatory changes that
materially and adversely affect our business.
   
    
    Modification of the standards relating to the payment of incentive
compensation to employees involved in student recruitment and enrollment; and
 
    
    Adoption of a definition of gainful employment for purposes of the
requirement for Title IV student financial aid that a program of study prepare
students for gainful employment in a recognized occupation.
  Incentive Compensation
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  24




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##### Table of Contents



Gainful Employment
  
    
    Programs with at least 45% of their former students paying down the
principal on their federal loans, or with graduates having a debt-to-earnings ratio
of less than 20% of discretionary income or 8% or total income, would be deemed
fully eligible for Title IV funding. These programs would be required to disclose
both their repayment rates and debt-to-earnings ratios unless they pass both of the
preceeding tests.
 
    
    Programs with less than 35% of their former students paying down the
principal on their federal loans, and with graduates having a debt-to-earnings ratio
above 30% of discretionary income and 12% of total income, would be deemed
ineligible for Title IV funding. Such programs would lose Title IV eligibility as
of July 1, 2012, although institutions must warn students in the programs about the
high debt-to-earnings ratio effective July 1, 2011. In order to mitigate against
large and immediate displacements of students as of July 1, 2012, the Department of
Education has further proposed that no more than 5 percent of a single institutions
programs would be declared ineligible as of that date, with the lowest-performing
programs immediately losing eligibility and the remaining non-compliant programs
losing eligibility one year later.
 
    
    Programs that are not fully eligible or ineligible under the above
standards would be restricted programs and subject to limits on enrollment growth.
Such institutions also would be required to demonstrated employer support for the
program and warn consumers and current students of high debt levels.
  The U.S. Congress has recently commenced an examination of the for-profit education sector that
could result in legislation or further U.S. Department of Education rulemaking restricting Title IV
program participation by proprietary schools in a manner that materially and adversely affects our
business.
     25




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##### Table of Contents



The implementation of our new back office systems could impact our ability to timely and accurately
admit students to the university and register them for classes, bill students, certify and disburse
financial aid, prepare financial reports, or impact the effectiveness of our internal controls over
financial reporting.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Recent Sales of Unregistered Securities
  Purchases of Equity Securities by the Issuer and Affiliated Purchasers
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Reserved
 
 Item 5. Other Information
   26




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##### Table of Contents



Item 6. Exhibits
  Number
    
    Description
    
    Method of Filing3.1
    
    
    Amended and Restated Certificate of Incorporation.
    
    Incorporated by
reference to
Exhibit 3.1 to
Amendment No. 6 to
the Companys
Registration
Statement on Form
S-1 filed with the
SEC on November 12,
2008.3.2
    
    
    Amended and Restated Bylaws.
    
    Incorporated by
reference to
Exhibit 3.1 to the
Companys Current
Report on Form 8-K
filed with the SEC
on August 2, 2010.4.1
    
    
    Specimen of Stock Certificate.
    
    Incorporated by
reference to
Exhibit 4.1 to
Amendment No. 2 to
the Companys
Registration
Statement on Form
S-1 filed with the
SEC on September
29, 2008.4.2
    
    
    Amended and Restated Investor Rights Agreement,
dated September 17, 2008, by and among Grand
Canyon Education, Inc. and the other parties
named therein.
    
    Incorporated by
reference to
Exhibit 4.2 to
Amendment No. 2 to
the Companys
Registration
Statement on Form
S-1 filed with the
SEC on September
29, 2008.10.1
    
    
    Amendment No. 1 to Loan Agreement, dated June 9,
2010, by and between Grand Canyon Education, Inc.
and Bank of America, N.A.
    
    Filed herewith.31.1
    
    
    Certification of Chief Executive Officer pursuant
to Rules 13a-14(a) and 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
    
    Filed herewith.31.2
    
    
    Certification of Chief Financial Officer pursuant
to Rules 13a-14(a) and 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
    
    Filed herewith.32.1
    
    
    Certification of Chief Executive Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. 
    
    Filed herewith.32.2
    
    
    Certification of Chief Financial Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. 
    
    Filed herewith.
 
    
    This certification is being furnished solely to accompany this report pursuant to 18 U.S.C.
Section 1350, and is not being filed for purposes of Section 18 of the Exchange Act, and is
not to be incorporated by reference into any filings of the Company, whether made before or
after the date hereof, regardless of any general incorporation language in such filing.  27




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##### Table of Contents



SIGNATURES
  GRAND CANYON EDUCATION, INC.Date: August 9, 2010
    By:
    /s/ Daniel E. BachusDaniel E. BachusChief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)  28




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##### Table of Contents



Number
    
    Description
    
    Method of Filing3.1
    
    
    Amended and Restated Certificate of Incorporation.
    
    Incorporated by
reference to
Exhibit 3.1 to
Amendment No. 6 to
the Companys
Registration
Statement on Form
S-1 filed with the
SEC on November 12,
2008.3.2
    
    
    Amended and Restated Bylaws.
    
    Incorporated by
reference to
Exhibit 3.1 to the
Companys Current
Report on Form 8-K
filed with the SEC
on August 2, 2010.4.1
    
    
    Specimen of Stock Certificate.
    
    Incorporated by
reference to
Exhibit 4.1 to
Amendment No. 2 to
the Companys
Registration
Statement on Form
S-1 filed with the
SEC on September
29, 2008.4.2
    
    
    Amended and Restated Investor Rights Agreement,
dated September 17, 2008, by and among Grand
Canyon Education, Inc. and the other parties
named therein.
    
    Incorporated by
reference to
Exhibit 4.2 to
Amendment No. 2 to
the Companys
Registration
Statement on Form
S-1 filed with the
SEC on September
29, 2008.10.1
    
    
    Amendment No. 1 to Loan Agreement, dated June 9,
2010, by and between Grand Canyon Education, Inc.
and Bank of America, N.A.
    
    Filed herewith.31.1
    
    
    Certification of Chief Executive Officer pursuant
to Rules 13a-14(a) and 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
    
    Filed herewith.31.2
    
    
    Certification of Chief Financial Officer pursuant
to Rules 13a-14(a) and 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
    
    Filed herewith.32.1
    
    
    Certification of Chief Executive Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. 
    
    Filed herewith.32.2
    
    
    Certification of Chief Financial Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. 
    
    Filed herewith.
 
    
    This certification is being furnished solely to accompany this report pursuant to 18 U.S.C.
Section 1350, and is not being filed for purposes of Section 18 of the Exchange Act, and is
not to be incorporated by reference into any filings of the Company, whether made before or
after the date hereof, regardless of any general incorporation language in such filing.  29